The Ministry of Power made amendments to the Electricity Rules of 2005, going back to the previous legislation. This change allows collective captive users to maintain a minimum ownership of 26% in a group captive open-access project. The notification specifies that the term “captive user” will be replaced with “captive users” in certain sections of the rules.
In July, the ministry issued an amendment known as the Electricity (Third Amendment) Rules 2023, requiring every captive power user, even in a group captive open access structure, to have a minimum ownership of 26%. This decision came after several stakeholders raised concerns with the ministry. However, this amendment is facing criticism from various stakeholders who argued that it would discourage the group captive open access model, which currently allows multiple consumers to participate.
The recent amendment in the Electricity Rules paves way for the combined usage by the group companies and it provides for a clear regulatory framework which would enable and foster group companies to set up captive power generation in better, efficient and coordinated manner.
“Designating Central Electricity Agency for verification of captive status of generating plants where captive generating plant and its captive user(s) are located in more than one state, adds to the regulatory certainty and shall promote inter-state development of captive power generation and supply of power from renewable rich states to states having high consumption of power, which would reduce cost of power and shall serve and boast the policy objective of make in India,” says Tabrez Malawat, Partner, The Guild – Advocates & Associate Counsels.
The ministry has also appointed the Central Electricity Authority to verify the captive status of projects that supply power to consumers in different states. This move aims to ensure consistency in the process across all states. This model is favored by the commercial and industrial sectors as it enables them to use clean energy thereby reducing the cost of energy.
“It settles all doubts regarding status of captive generating plants and shareholding norms that had arisen as a result of the previous amendment, and provides a further boost to the sector by making CEA the verifying authority for captive generating plants with inter-state characteristics. This will ensure consistency in compliance of captive norms and reduce disputes and uncertainty for captive users and investors in the sector,” says Ramanuj Kumar, Partner, Cyril Amarchand Mangaldas.
The earlier amendment brought out on June 30, 2023 created confusion by omitting holding companies and applying the amendment to existing captive users. “The clarification clarifies the same by including holding companies as eligible consumers for captive consumption and by removing “existing” clarifies that it applies to all captive users and not just existing captive users,” says Rohit Jain, Managing Partner, Singhania & Co.
Experts also feel that the central government by introducing the Electricity (Third Amendment) offers a refined definition of ‘captive user(s)’, eliminating ambiguities. Furthermore, it has removed certain provisions to enhance clarity. “A significant highlight is the introduction of a robust verification mechanism for captive generating plants that operate across multiple states. Entrusted to the Central Electricity Authority, this verification ensures uniformity and transparency. This latest amendment underscores the government’s dedication to providing clear directives in the ever-evolving energy landscape,” says Aviral Kapoor, Partner, Alagh & Kapoor Law Offices.